A startup called Flurish Inc., better known as LendUp, has raised $14 million in Series A financing to offer an online alternative to traditional payday loans, according to co-founders Sasha Orloff and Jacob Rosenberg.

LendUp co-founders Jacob Rosenberg (left) and Sasha Orloff at the company’s offices in San Francisco

Google Ventures led the investment in LendUp, joined by Data Collective and QED Investors. The deal marks one of several in the lending segment of financial services for Google Ventures and Google Inc., which backed OnDeck Capital Inc. and Lending Club Inc., respectively.

LendUp, based in San Francisco with 14 employees, gives short-term, small dollar loans to borrowers online–usually the kinds of borrowers banks won’t help. Instead of relying on FICO scores, LendUp uses publicly available data online–from social networks, for example–to assess which applicants may be a good risk, even if they don’t have any credit history in the U.S. Loan decisions are usually made within minutes, the company says.

According to the most recent data available from the FDIC, 28.3% of households in the U.S. are deemed unbanked or underbanked, meaning they don’t have access to or sometimes can’t afford to use secure credit cards or loans from banks.

When unbanked and underbanked people need working capital, they may turn to non-bank sources of credit, like pawnshops and payday lenders, that can sink them further into a debt cycle with outrageous fees, interest rates or unrealistically short periods of time before their loans come due, said Mr. Orloff, the company’s chief executive.

According to the Consumer Financial Protection Bureau, payday lenders collect $7 billion in fees alone and make more than $45 billion in high-interest loans annually in the U.S.

LendUp wants to help borrowers get out of the debt cycle and become more credit-worthy over time, its executives say. To that end, the company sends its customers educational videos and other content to help them become more financially literate. It also reports data back to credit rating agencies about borrowers who have successfully repaid their loans to LendUp within established terms.

In 2012, LendUp issued about 2,000 loans and is on track to complete 35,000 loans in 2013. As it expands beyond California the company expects to surpass 300,000 loans in 2014.

LendUp launched its service in October 2012 in California and is now operating in Missouri and Louisiana also. It makes loans from its own coffers, unlike peer-to-peer lending platforms or marketplaces such as Lending Club or Funding Circle. The company competes with non-bank payday lenders in the U.S. like EZCORP Inc. and First Cash Financial Services Inc.

Google Ventures Partner Blake Byers joined LendUp’s board of directors with his firm’s investment. The investor said he expects LendUp to make short-term lending reasonable and favorable for the “80 million people banks won’t give credit cards to,” and help reshape what had been “a pretty terrible industry.”

The company graduated from the Y Combinator accelerator and previously raised about $4.5 million in seed financing.

Write to Lora Kolodny at lora.kolodny@wsj.com. Follow her on Twitter at @lorakolodny

(UPDATE: This story has been revised to clarify that Google Ventures led the round in LendUp, and Google Inc. invested in Lending Club Inc., as confirmed by a Google Ventures spokesperson.)

Comments (5 of 11)

This is no better then payday loan or a predatory loan company taking advantage of the poor. It is so sad how they take advantage of poor people disguising themselves as a company wanting to help. If they really wanted to help people they would make the loans lower then 10% apr. Instead they start as low as 29% apr and can go as high as 3000% apr. I am so disgusted with companies taking advantage of those who don't know any better or don't have any choice and sign up to this crap. Shocking is that Google and other firms would even align themselves with this firm.

4:32 pm September 18, 2014

nfhiggs wrote:

MO Fact Checker - not really. Its more of a hybrid product that bridges the payday loan and the traditional credit card/personal loan arena. I've done the payday loan thing before and the payback is typically one or two WEEKS, with fees of around 7-15% of the amount borrowed - APR of 350% or more. You can usually roll it over if you pay the fees, but only a limited number of times - then you have to sart paying principle back - and pretty quickly - typically 20% or more. And no matter how many times you borrow from them, the fees never change. With lendup, the fees are about 1/2 of what the typical payday lender charges, with 1-2 MONTH payoff. In addition, as the borrower pays back successfully, he 'graduates' through various levels where he eventually gets a 12 month loan at 29%. Not quite 'bank rates' but close to it. Also at that level the borrower can start having his loans reported to Credit Reporting Agencies.

I like the concept.

6:20 pm November 13, 2013

dataoverdose wrote:

This is the best way to address the payday loan controversy. Rather than demanding more rules to put payday lenders out of business, create more alternatives for them to compete against. If they can offer small loans at lower rates, chances are that rates will come down overall, exactly like they do for other loan products.

9:03 pm November 12, 2013

Mark Remas wrote:

This is a sound concept and built on educating the consumer. People need access to money and a large portion of the population can't get it through traditional channels. The key with Lend Up is the after market education so that consumers can create a credit history and manage their funds more reasonably.

7:07 pm November 12, 2013

JM wrote:

Ha. Google Ventures doesn't get involved in something that is "nothing besides an interface on pay day loans". These guys are trying to break people from the payday loan cycle and build better credit, as well as become more educated and responsible financially.

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